NetDragon Announces First Quarter 2011 Unaudited Financial Results

Net Profit Rises 269.9% Sequentially

Online Games & Mobile Internet Businesses Maintain Growth Momentum

HONG KONG, June 15, 2011 /PRNewswire-Asia/ — NetDragon Websoft Inc. (“NetDragon”, Stock Code: 777), a leading online game developer and operator in China, today announced its unaudited financial results for the three months ended March 31, 2011. Additionally, a management conference call and live webcast is scheduled at 8:00 PM Hong Kong time, June 15, 2011 to review financial results and recent business developments.

First Quarter 2011 Financial and Operational Highlights

  • Total revenues were approximately RMB 150.7 million, an increase of 4.7% over fourth quarter 2010
  • Gross profit was approximately RMB 136.1 million, an increase of 5.2% over fourth quarter 2010; gross margin was 90.3%, up from 89.8% in fourth quarter 2010
  • Mobile Internet business income was approximately RMB 6.1 million, an increase of 45.8% over fourth quarter 2010
  • Net profit was approximately RMB 34.7 million, an increase of 269.9% over fourth quarter 2010; net profit margin was 23.0%, up from 6.5% in the fourth quarter 2010
  • Basic earnings per share (EPS) were RMB 6.57 cents, diluted EPS were RMB 6.57 cents
  • Average concurrent users (“ACU”) for online games were 246,000, an increase of 6.0% over the fourth quarter 2010
  • Peak concurrent users (“PCU”) for online games were 546,000, an increase of 0.7% over the fourth quarter 2010

Mr. Liu Dejian, Chairman and Executive Director of NetDragon, stated, “This quarter, we achieved a net profit of RMB 34.7 million, indicating an approximately 269.9% Q-to-Q increase. Our game business recorded steady gains amid fierce competition in the first quarter, driven by stable growth from our flagship products Conquer Online and Eudemons Online. In addition, the new expansion pack (“EP”) “Soul of Steel” for Zero Online gave players more choices of profession. The EP “The Returning Light” for French, Spanish and Arabic versions of Conquer Online helped NetDragon remain one of the best Chinese online game operators in overseas markets. All of these make us feel more confident in the online game business. To cope with increasingly intensified homogeneous competition in the online game market, we will deliver prominent products that could differentiate themselves from competitors by combing better engines and improved technologies with more popular themes.”

“Our mobile Internet business income reached approximately RMB 6.1million for the first quarter of this year, close to that for the whole year 2010. The business’ strategic position in the company is becoming increasingly prominent and it is expected to rapidly develop as a new growth point for the company. Our mobile Internet business income grew significantly, while the number of users of the business’ mobile phone software series was continuing to steadily increase. As of the end of March 2011, the total number of users of the 91 Series mobile phone software hit a new record. Currently, the 91 Series mobile phone software is more prominently showing its advantages in channels and its user activity continues to improve. As more content providers, advertisers, mobile phone vendors and small and medium-sized developers are kicking off in-depth cooperation with us, we believe that our mobile Internet business will achieve greater development.”

First Quarter 2011 Business Highlights

  • The new EP “Soul of Steel” for Zero Online was released.
  • The French, Spanish and Arabic versions of Conquer Online’s EP “The Returning Light” were launched.
  • As the only product in the marketplace that supports all mainstream smart mobile platforms, the concept version of 91 PC Suite was launched and has received a good response from the market.

Recent Developments

  • The new EP “Edge of Night” for Eudemons Online, released in April 2011, has generated excitement among new and existing players, driving the maximum number of the game’s concurrent users to hit a new record high in four years.
  • The EP “Demon Rising” for the traditional Chinese version of Eudemons Online was launched in Malaysia in May 2011.
  • In April, NetDragon entered into a strategic cooperation agreement with Japan’s largest social game developer DeNA to share their mobile phone game resources and distribution platform.
  • On April 28, 2011, NetDragon granted a total of 16,090,900 share options to its core members, outstanding employees and other eligible participants . The move aims to ensure the continuing growth and success of NetDragon by implementing a medium-and long-term equity incentive plan within the company.
  • On May 24, NetDragon paid a final dividend of HK$0.02 per share for the year ended December 31, 2010, with dividend payments in cash totaling approx. RMB8,994,000.
  • On May 30, NetDragon’s indirectly wholly-owned subsidiary 91 Limited entered into the share purchase agreement with members of the IDG Group on the issuance and sale of 15,384,000 preferred shares for a total consideration of US$3,999,840 (approximately HK$31,200,000). The preferred shares sold will represent all preferred shares that 91 Limited issued and account for approximately 17.9% of all the outstanding shares of 91Limited upon the full conversion of the preferred shares.

Business Outlook

  • New EPs for Conquer Online and Zero Online are expected to be introduced in the second half of 2011.
  • NetDragon’s first 3D MMORPG, World of Dungeon Keeper, is expected to enter open beta testing in the second half of 2011.
  • NetDragon’s first 2D “beat-em-up” side scroller, icombo, is expected to enter open beta testing in the second half of 2011.
  • NetDragon’s first “first-person shooter” game, Absolute Force, is expected to enter open beta testing in the second half of 2011.
  • The action-oriented PC online game TRANSFORMERS Online is expected to officially roll-out in 2011 in China .
  • NetDragon will continue to build up the platform strategy for 91 PC Suite, to maintain its leading presence in Chinese market place.
Financial Highlights:
RMB(’000) 1Q 2011 4Q 2010 1Q 2010 QoQ(%) YoY(%)
Revenue 150,656 143,957 139,476 4.7% 8.0%
Gross Profit 136,113 129,339 120,759 5.2% 12.7%
GPM 90.3% 89.8% 86.6% 0.5% 3.7%
Profit for the period 34,672 9,373 21,169 269.9% 63.8%
NPM 23.0% 6.5% 15.2% 16.5% 7.8%
EPS-Basic (RMB cents) 6.57 1.76 4.03 273.3% 63.0%
EPS-Diluted (RMB cents) 6.57 1.76 4.03 273.3% 63.0%
1Q 2011 4Q 2010 3Q 2010 2Q 2010 1Q 2010
PCU 546,000 542,000 589,000 449,000 451,000
ACU 246,000 232,000 226,000 217,000 230,000
Note 1: Online games include Conquer Online, Eudemons Online, Zero Online, Tou Ming Zhuang Online,
Heroes of Might and Magic Online, Way of the Five, Disney Fantasy Online, Tian Yuan and other

Management Conference Call

NetDragon will host a management conference call and webcast to review its results and recent developments, at 8:00PM Hong Kong Time, which corresponds to 8:00AM Eastern Daylight Time, 15 June, 2011.

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